Obama pumps in $75 bn to save American homeowners

February 19th, 2009 - 10:32 am ICT by IANS  

Barack ObamaWashington, Feb 19 (IANS) US President Barack Obama has unveiled a $75 billion multi-pronged plan that seeks to help up to nine million American borrowers suffering from falling home prices and unaffordable mortgage terms.

The foreclosure prevention programme aimed at arresting the problem that ignited America’s economic woes is part of the Obama administration’s multi-trillion dollar effort to jolt the nation out of its deepening recession.

Speaking to a crowd packed in a high school gymnasium in Mesa, Arizona, a community hit hard by the mortgage meltdown, Obama said the mortgage plan would help all homeowners retain their fast-evaporating home values by helping those in danger of losing their houses.

“The plan I’m announcing focuses on rescuing families who have played by the rules and acted responsibly: by refinancing loans for millions of families in traditional mortgages who are underwater or close to it,” Obama said.

The long-awaited foreclosure fix marks a sharp departure from the Bush administration, which relied mainly on having servicers voluntarily modify troubled mortgages.

Obama, on the other hand, has put billions of federal funds into enticing servicers to modify the loans of those who’ve already stopped paying.

While still voluntary, the programme contains a mix of carrots and sticks for mortgage servicers and investors, both of whom have been seen as resistant to modifying loans.

The programme would not only give servicers $1,000 for each modification, but would give them another $1,000 a year for three years if the borrower stays current. It will also give $500 to servicers and $1,500 to mortgage holders if they modify at-risk loans before the borrower falls behind.

But the administration is also wielding a big stick. It will work with Congress to amend bankruptcy laws to allow judges to modify mortgages.

“In the end, all of us are paying a price for this home mortgage crisis,” Obama said. “And all of us will pay an even steeper price if we allow this crisis to deepen-a crisis which is unravelling homeownership, the middle class and the American Dream itself.”

“But if we act boldly and swiftly to arrest this downward spiral, every American will benefit,” he added.

The mortgage meltdown has prompted a steep decline in prices, leaving many homeowners owing more than their house is worth. Nationwide, prices have fallen 17.5 percent back to the level they were at in fall 2004, according to CNN.

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